Has the cost curve bent?

For the fourth consecutive year, growth in health care spending remained low, increasing by 3.7 percent in 2012 to $2.8 trillion. At the same time, the share of the economy devoted to health fell slightly (from 17.3 percent to 17.2 percent) as the nominal gross domestic product (GDP) grew by 4.6 percent. Faster growth in hospital services and in physician and clinical services was mitigated by slower growth in prices for prescription drugs and nursing home services.

According to the S&P Healthcare Economic Composite Index, the average per capita cost of health care services covered by commercial insurance and Medicare increased by 3.06 percent over the twelve months ending July 2013. This compares with a rate of 7 to 8 percent that was prevailing as recently as 2009.

Healthcare spending as a share of GDP declined! This was almost unimaginable a just few years ago.

The question is, are these reductions in spending sustainable. Over the next few years maybe, but in the long-run, probably not. Decreases in spending in Medicare were not driven by decreasing unnecessary care but by reducing reimbursement to providers. While there was certainly some fat to be cut from some of Medicare’s reimbursement systems, continuing to drop reimbursement rates will eventually cause providers to stop accepting Medicare and for quality to fall. Thus, policymakers must strike a fine balance between frugality and access to care for their patients.

One Comment

As I understand it, the US govt agency charged with defining GDP recently changed the way it is calculated. R&D use to be an expense but is now capitalized (or vice versa?), which must have raised GDP. Since “total health care spending” was not revised, the denominatior (GDP) increased, making it appear that HC spending is declining as a pct of GDP. I can not cite a reference, but since your website is “all about HC”, I suggest you investigate this change.